Servicers Get Less Ancillary Income

A survey by Moody's Investors Service found that ancillary fees earned by mortgage servicers declined slightly between 2003 and 2005, and technology and regulatory scrutiny were partially to blame.

With servicers re-evaluating procedures in the light of some high profile "predatory servicing" cases last year, it appears the industry was less aggressive in pursuing late fees and other collection related charges. Moody's found that late fees assessed per loan serviced have decreased in recent years.

Moody's collected information on 19 types of mortgage ancillary fees that servicers charge borrowers, including fees for information requests and late payment fees. The rating agency said the data were collected from about half of its rated mortgage servicers. Over the past few years, those fees have "moderately decreased," the Moody's report said.

"Overall, most fees declined moderately, but the decrease was especially pronounced in areas where technological innovation or workflow efficiencies decreased servicing costs, such as automated loan payments made through an interactive voice response system or the Web," said Moody's analyst Fern Wang in a news release. "However, we did not see a significant decline in fees for services that require manual processing. Direct labor costs kept these fees constant."

Automation has allowed an increasing number of servicers to offer information such as payment history, year-end statements, copies of loan documents, and name change services free of charge.

One interesting trend: Moody's found that some servicers have adopted a "tiered" approach to charging for automated payment methods, with the charge linked to the date the payment is actually made.

In addition, the number of servicers offering to take payments through an interactive voice response system or a website continues to grow. In 2003, 15% of servicers did not have an IVR payment option and 35% did not take Web payments. In 2005, those percentages dipped to 5% and 20% respectively.

Regulatory scrutiny of servicing practices may also be playing a role in the lower fee income. Moody's said most servicers have re-examined their practices in the wake of "predatory servicing" allegations that dogged some lenders. Translation: servicers are more careful about assessing late payment penalties or other collection related costs than in the past.

Moody's said other reductions in fee income occurred in "potentially sensitive areas" that have been the subject of regulatory investigation or rumors. Those fees include late payment fees and fees for requests for information or making changes to basic information.

Moody's noted in the report that technology has also made basic loan information more accessible to borrowers through automated telephone and Web services.